Local car assemblers have received Sh28 billion in tax waivers in four years, helping them to ramp up production.
A new report from the Treasury shows that tax expenditure or the value of revenue foregone by the government due to tax reliefs on locally assembled vehicles has increased since 2017 tied to government policies.
Excise duty expenditure for locally assembled motor vehicles jumped by 65 percent from five years ago to Sh7.6 billion in 2021, reflecting a favourable tax regime for manufacturers.
Data from Kenya Motor Vehicle Industry Association showed that the share of locally assembled vehicles by end of last year rose to a record 78 percent of new automotive sales as formal dealers continue to benefit from government policies aimed at encouraging local production.
Locally assembled vehicles were 10,383 out of a total of 13,352 new cars, an indicator that preferential tax rates, as well as a captive government market, have made assembly of cars a lucrative business with companies such as Peugeot and VW making a comeback into the country.
The share of locally assembled motor vehicles has been rising, from a low of 42.6 percent in 2018, or 5,555 car units.
Companies strong in local production have linked their rising fortunes to support from the government that has enacted favourable policies besides being one of the biggest buyers of new vehicles.
In the Finance Act 2022, locally assembled vehicles were freed from the requirement that they source at least 30 percent of spare parts in Kenya to enjoy tax relief, a move that made it difficult for the automakers to meet as parts were hardly available.
